From The Economist....

Before we go, tomorrow's edition of The Economist has an interesting take on the power battle at the heart of the European Central Bank.

Its Charlemagne columnist compares Mario Draghi to a western sheriff who has lost his nerve. Having promised action, the ECB president appears to be "slugging it out with deputies trying to keep the gun-closet locked" (yes you, Jens).

Here's a bullet or two:

To a greater extent than outsiders might think, Mr Draghi shares Mr Weidmann’s concerns. The word from Frankfurt is that, because he has run Italy’s treasury and its central bank, Mr Draghi knows more than most how monetary financing of deficits can lead to high inflation. He also knows that past bond-buying by the ECB had no lasting impact and loaded the ECB with dubious bonds. But to him this means that the weapon should be used with care, not banned entirely.

With little good news in the euro crisis today, traders largely marked time ahead of the Jackson Hole symposium tomorrow (the annual get-together of central bankers in Wyoming). Ben Bernanke will give a speech, in which the chairman of the Federal Reserve may signal another stimulus package.

Chris Beauchamp, market analyst at IG Index, explains that the Fed chief could alarm the markets:

The weight of expectation surrounding tomorrow's speech means that Mr Bernanke will have to drop some fairly strong hints if markets are not to snub their noses at his words and drop back from their recent highs.

4.43pm BST

Zzzzzzzzz

Oh dear. This picture from this afternoon's Rajoy/Hollande press conference just arrived, showing one journalist stifling a yawn, and a second, er, vigorously inspecting the inside of his eyelids:

Photograph: Paul White/AP

It rather sums up the state-of-play in the eurozone crisis, after an August that has dragged on and on and on. Also confirms that there was little real drama this afternoon in Madrid (see 14.16pm for some 'highlights')

Updated at 5.41pm BST

4.18pm BST

Estonia approves ESM

The Estonian parliament has approved the creation of the European Stability Mechanism.

At a vote this afternoon, 51 MPs voted in favour of Europe's new permanent bailout fund, while 34 voted against. A further 16 MPs abstained.

4.05pm BST

Slovak PM on chances of euro-break

Robert Fico, the prime minister of Slovakia, told a televised news conference this afternoon that he thinks there's as much chance of the euro collapsing, as holding together.

Fico said:

I am worried about a euro zone collapse, of course...

It will depend on how we handle the situation in some countries like Greece and Spain. It also depends on how individual euro zone countries react to documents that concern strengthening European integration...

I see a euro zone breakup as realistic as holding together, 50 to 50.

Updated at 4.18pm BST

3.53pm BST

Euro hit by Sloval PM's comments

The euro has taken a dive after Reuters flashed up the alarming news that Slovakia's prime minister, Robert Fico, has said he sees a 50:50 chance of a eurozone break-up.

Don't have any more details on these comments yet..

This graph, crudely snapped from my Reuters terminal, shows how the euro lost value against the dollar in the last half an hour or so (the timings are in GMT, not BST). It's now below $1.25, having hit $1.256 earlier today.

Euro vs dollar, 29 August 2012 Photograph: Reuters

Updated at 4.03pm BST

3.34pm BST

Valencia seeks another €1bn

A new blow to Spain this afternoon – the region of Valencia has upped the size of its aid request by €1bn, to €4.5bn.

AP explains

The announcement by the Valencia's president Alberto Fabra brought to almost 11 billion the amount being sought by just three of the 17 Spanish regional governments from the 18 billion fund set up by the government last month.

FrançoisHollande has now offered support to Mario Draghi's plan to intervene in the bond markets to drive down Spain and Italy's borrowing costs.

He told the press conference in Madrid (see 14.03pm onwards) that wide sovereign debt spreads (ie, the difference between Spain's bond yields and Germany's), can be a "justification for ECB intervention".

(not, though, Draghi has to worry about France's support for a bond-buying splurge)

Hollande also said it was sensible of Mariano Rajoy to hold off asking for aid until he knows what terms it would be offered at (this is the 'conditionality' issue - the fiscal consolidation and structural reform that governments would have to agree to before Draghi deployed the ECB's balance sheet).

2.27pm BST

In Madrid, Hollande tells the ongoing press conference that he and Mariano Rajoy are "attached to the integrity and irreversibility" of the single currency.

The French president adds that, despite not coming from "the same political family", the two leaders share the same vision for the eurozone.

Both men took power since the financial crisis began – Rajoy, a conservative, won a resounding victory in last November's general election, while socialist Hollande notched up his 100th day in power earlier this week.

Mariano Rajoy begins this afternoon's press conference in Madrid by telling reporters that he and Hollande discussed the push for closer integration in Europe, saying he agrees with the French president that fiscal integration and a pact for growth are both needed.

The Spanish PM adds that the eurozone will not take a backward step in the crisis, and neither will the wider EU. On Greece, he says he's convinced that Greece will meet its commitments.

François Hollande then speaks, saying that the upcoming EU summit in mid-October is a crucial event. "Important and lasting decisions" on the eurozone's destiny can be taken when leaders gather in Cyprus.

Hollande also offers Spain his support, saying that its borrowing costs are remain too high today.

2.03pm BST

Rajoy/Hollande press conference begins

Spanish prime minister Mariano Rajoy and French president François Hollande have begun their press conference in Madrid, following their talks about the crisis.

Angela Merkel (centre left) and China's Vice President Xi Jinping (centre right) talk during a meeting at the Great Hall of the People in Beijing today. Photograph: POOL/REUTERS

Merkel and Xi Jinping again.Photograph: Diego Azubel/AP

1.39pm BST

Here's some reaction to the CBI's decision to slash its forecast for the UK economy this year (it now expects a contraction of 0.3%, not growth of 0.6% – see 12.15pm).

Our economics correspondent Phillip Inman writes:

CBI boss John Cridland appears much like the economy, deflated. His calls for much needed infrastructure projects and financing initiatives are welcomed in government, but little is being done. With a brake on public spending, Whitehall is being told to come up with innovative ways to tap private cash, which takes time. So much time that it looks like the few projects agreed in principle will be delayed till at least 2015, such as the green investment bank.

Cridland seems reconciled to the difficult position the chancellor finds himself in, not least because the CBI “stands shoulder to shoulder” with Osborne on his deficit reduction policy. Businesses, says Cridland, still want cuts in public expenditure to take precedence.

The CBI is also taking some stick on Twitter for its revised forecasts:

Joel Hills (@joelhillssky)

CBI says recovery will start at end of year. Back in Feb they said we would avoid a recession. We were already back in one!

Irish housing gloom

Ireland's obsession with home ownership has become another casualty of the Celtic Tiger's crash and the ongoing eurozone crisis.

Henry McDonald reports from Dublin:

The number of Irish households now in rented accomodation has leapt by 47% over the five years of the recession according to the Republic's Central Statistics Office.

New CSO figures released today show that there were almost 475,000 Irish households renting accommodation last year compared to 323,00 in 2006.

Between the height of the Celtic Tiger boom and last year there has been a drop in home ownership from 75 per cent to 70 per cent.

In yet another indication of the unemployment crisis blighting the Republic, the CSO found that one in 12 households with a mortgage are now headed by someone on the dole. More than of these homes had no one living there currently in a job.

Almost a quarter of the rented accommodation in Dublin were apartments many of them constructed during the building boom that so spectacularly crashed in 2007-2008. The pressure to own your own helped fuel Ireland's massive private construction programmes from the late 1990s onwards as property speculators borrowed billions from Irish banks to build new new houses and apartment complexes across the state.

Many of these estates and apartment blocks have become empty monuments to the greed and waste during the Celtic Tiger years.

The latest residential property price data makes grim reading too. Although prices inched up by 0.2% in July, they are 13.6% lower than a year ago. House prices in Dublin are 57% lower than their peak in 2007. More details here (pdf).

12.49pm BST

Heads-up: Spanish prime minister Mariano Rajoy has been holding talks with French president François Hollande in Madrid today. The two leaders are expected to hold a press conference at around 1.30pm BST (2.30pm Spanish time)....

Updated at 12.50pm BST

12.32pm BST

HU: CHINA SUPPORTS EUROPE OVER CRISIS

China's president has given Angela Merkel a show of support over the crisis in the eurozone, and also urged leaders to resolve it fast.

Chinese State Radio is reporting that president Hu told the German chancellor today that China supports Europe's efforts to overcome the debt crisis, and that the sooner it is overcome the better it will be for the world

(that's from Reuters Beijing office, looking for more details now...)

Hu's comments come a few hours after premier Wen Jaibao struck a more pessimistic tone, telling reporters how worried he was about the crisis (see 8.51am)

Updated at 12.37pm BST

12.15pm BST

CBI slashes UK forecasts, blames € and US

The Confederation of British Industry has slashed its forecast for the UK economy this year.

Having previously forecast growth of 0.6% for 2012, the CBI now expects a contraction of 0.3%.

The old forecast was clearly out of line, as official data has shown that the UK shrank by 0.3% in Q1, and 0.5% in Q2.

After expressing 'surprise' in April that the UK was back in recession, CBI director general John Cridland now says that conditions have weakened in recent weeks. Events in the euro area, and the US, are blamed.

Cridland said:

Underlying growth will return to the economy later in the year than previously expected, with a somewhat better outlook next year.

However, euro area uncertainty, and the looming “fiscal cliff” of spending cuts and tax increases in the US will only add to the sense of unease during the coming months.

11.59am BST

Barroso on banking union

European Commission President Jose Barroso has declared this morning that the EU will unveil its much-anticipated proposals for banking union on Wednesday September 12.

That date is already circled in bright red ink in the eurocrisis calendar. The German constitutional court ruling on the legality of the new European bailout fund, and the Dutch general election, are both scheduled for that day too.

The shake-up of Europe's banking sector is a key plank of Brussels' response to the crisis, and includes closer supervision of banks, and a new scheme to guarantee savers' funds.

As Barroso explains:

Establishing a banking union by 2013 will not give Europe a magic wand with which to wave away the economic crisis overnight; but it is a major and crucial step to restoring the confidence of Europe's citizens, international partners, and investors. It will ensure financial stability, increase transparency, make the banking sector accountable, and protect taxpayers' money.

Moreover, it is the start of something much bigger. Once again, I would like to stress that the eurozone is drawing lessons from the past and defining a way forward, not backwards, in terms of integration. That is good news not only for the euro, but also for the global economy.

Looking back at Angela Merkel's trip to Beijing – Chinese premier Wen Jaibao did offer some encouragement to the eurozone today by declaring that China was prepared to keep buying European government debt.

This seems to fall short of a bold new commitment to mop up large quantities of peripheral sovereign bonds; Wen also spoke about the need to conduct full risk evaluations.

But the comments are being interpreted as a sign of support for the eurozone, as Wen also expressed confidence that European leaders can solve the crisis (as well as expressing deep concern about it - see 8.51am)

The German chancellor has brought good news to Beijing, announcing that her government will not support a call for trade sanctions against Chine over solar power panels (more here on the FT).

Samaras: €11.5bn spending cuts must happen

Antonis Samaras. Photograph: Louise Gouliamaki/AFP/Getty Images

In Greece, prime minister Antonis Samaras has warned members of his New Democracy party that the country would be forced out of the eurozone unless it makes the €11.5bn of cuts demanded by its lenders.

Negotiations over the cutbacks programme has been grinding on for months, with a finally final sign-off expected next week (in time for the return of the Troika).

Samaras said this morning that the package contained "painful, necessary spending cuts", and promised that it will be the last of its kind as Greece simply cannot absorb further austerity (that's via Kathimerini)

Updated at 11.59am BST

10.57am BST

Here's some reaction to this morning's auction of Italian debt (see 10.46am)

Nick Spiro of Spiro Sovereign Strategy

While the pressure point in Italian sovereign debt becomes more apparent in auctions of longer-dated paper, today's sale, an important one, was well received.

The Treasury again managed to hit the top end of its target and the yield on the 10-year bond came in at significantly under 6% and in line with secondary market levels. For the time being, the "Draghi effect" is still palpable in Spanish and Italian debt market.

Elisabeth Afseth of Investec:

I think [the fall in yields] is very much to do with the ECB and if we hadn't had that I suspect that both Spanish and Italian yields would have been considerably wider than where they are.

Annalisa Piazza of Newedge Strategy

All in all, the auction was smoothly absorbed, despite uncertainties still surrounding the EMU periphery....If we consider that the amount on offer was at the top of the target, the outcome is not too bad.

10.46am BST

Italian debt auction results

A decent result for Italy in the bond market this morning, with investors snapping up an auction of long-term debt at the lowest rate of return for months.

The Italian Treasury sold €4bn of 10-year bonds at average yields (the interest rate on the bond) of 5.82%, down from 5.96% last month. That's the lowest yield on this kind of bond since late-March.

Italy also sold €2.5bn of five-year bonds at yields of 4.73% (down from 5.29% last time), which is also the lowest rate since March.

The successful auction reflects optimism that the European Central Bank is about to launch a programme to help peg Spain and Italy's borrowing costs.

Reaction to follow....

10.23am BST

Eurozone sentiment slides to lowest since August 2009

Economic confidence in the eurozone has fallen to its lowest level in more than three years.

The European Commission's monthly measure of morale among business people and consumer fell to 86.1, down from 87.9 in July.

It's a sign of growing pessimism over the euro area economy, reflecting how the crisis has spread in recent months. The survey was also conducted after Mario Draghi, the ECB president, pledged to do everything in his power to protect the euro.

Updated at 10.23am BST

10.11am BST

Philipp Rösler keeps tough approach on Greece

Philipp Rösler, Germany's economy minister, has refused to retract his claim that a Greek exit from the eurozone has "lost its horror".

Interviewed by German newspaper Zeit today, Rösler declared that he has "nothing to take back". It's the latest indication that some elements of the German political class have concluded that a Grexit can be handled.

The interview is online here (in German). In it, Rösler said it "remains true" that Greece's potential exit is no longer a horrific prospect(a claim he first made in late July). He pointed to the "major measures" that are being implemented to protect the wider eurozone, such as the Eurupean Stability Mechanism and the new fiscal pact.

Rösler's comments were condemned as 'dangerous' by other German politicians, but he argues that he and his Free Democrats Party (Merkel's junior coalition partner), simply speak from the heart.

In today's interview, Rösler sticks to a tough line on Greece's aid programme:

Who is making reform efforts, deserves Europe's solidarity. Anyone who breaks promises, can get no more money

With the FDP polling just 5% of public support, though, perhaps we shouldn't worry too much about Rösler's views - a point Yannis Koutsomitis makes on Twitter:

Yannis Koutsomitis (@YanniKouts)

Rösler's exit from seriousness is totally manageable and has lost its terror. #Germany

Where there's a will.....

Angela Merkel's message to China is that the eurozone has an "absolute political will" to solve the crisis.

She made the comments after her meeting with Wen Jiabao this morning.

Merkel has a two-fold mission.

1) to ressure Beijing that the euro crisis is in hand, thus encouraging them to keep buying European debt

2) to build trade links with China.

On that second point, several business deals were signed. As well as Airbus's 50-plane deal (see 8.38am), the conglomerate has also agreed to invest $1.6 billion in a new assembly plant in Tianjin, while Volkswagen is investing $219 million in an "environmentally friendly production facility" and vocational training initiative, also in Tianjin (Wen's home city)

Chinese Premier Wen Jiabao, second from right, chats with German Chancellor Angela Merkel, center, during a signing ceremony at the Great Hall of the People in Beijing, China, Thursday, Aug. 30, 2012. Photograph: Ng Han Guan/AP

9.07am BST

German unemployment up by 9,000

Back in Germany, the number of people out of work has risen by 9,000 on a seasonally adjusted basis.

The German Labour Office just reported that there are 2.901m people out of work in Europe's largest economy, which leaves its jobless rate at 6.8% (compared to a eurozone average of 11.2%).

Frank-Jürgen Weise, head of the Labour Office, attributed the increase to the weakening European economy:

The significant labour market indicators as a whole are developingincreasingly weakly. Lower German economic growth is showing here

8.51am BST

Wen Jiabao urges more action on euro crisis

Here's the full quotes from Chinese premier Wen Jiabao this morning, expressing his concern over the situation in the eurozone and calling for more action

The European debt crisis has continued to worsen, giving rise to serious concerns in the international community. Frankly speaking, I am also worried

The main worries are two-fold: first is whether Greece will leave the eurozone...The second is whether Italy and Spain will take comprehensive rescue measures. Resolving these two problems rests with whether Greece, Spain, Italy and other countries have the determination for reform.

Wen also said that solving the crisis required a two-fold strategy of "fiscal tightening", and rebalancing individual country's economies.

Updated at 8.58am BST

8.38am BST

Trade is also on the agenda for Merkel's trip, and one deal has already been announced. Airbus has won a contract to sell 50 A320 planes to ICBC leasing of China.

Our industrial editor, Dan Milmo, comments:

This is a good deal for Airbus, given that not so long ago the Chinese government was making noises about boycotting its products over the EU carbon emission scheme, and its extension to airlines.

Germany owns more than a fifth of Airbus's parent company, EADS.

8.24am BST

Latest snaps from Beijing

Here are some more photos from Merkel's meeting in China - one from the press conference with Wen Jaibao, and one from their bilateral talks:

Angela Merkel and Wen Jiabao, at a news conference at the Great Hall of the People in Beijing today. Photograph: JASON LEE/REUTERS

A shot of the bilateral talks between Angela Merkel and Wen Jiabao inside the Great Hall of the People in Beijing. Photograph: Diego Azubel/EPA

Updated at 8.51am BST

8.16am BST

Wen: I'm worried about the eurozone

Chinese premier Wen Jiabao has warned that the eurozone crisis is worsening, at the start of Angela Merkel's two-day trip to the country.

Speaking after a meeting with the German chancellor, Wen said he was concerned that Europe's woes are dragging down the world economy. His message to Merkel, it seems, is to make progress fast.

Wen told reporters in Beijing:

Recently, the European debt crisis has continued to worsen, giving rise to serious concerns in the international community. Frankly speaking, I am also worried.

At a press conference, Wen also said that the global financial crisis has not ended (no argument there), adding that Italy, Spain and Greece must continue to reform their economies.

Angela Merkel and Wen Jiabao holding bilateral talks inside the Great Hall of the People in Beijing. Photograph: Diego Azubel/AP

AP reports that Wen also challenged Merkel over the euro during their meeting earlier today:

The impact of the global financial crisis and the European sovereign debt crisis on the world is continuously deepening," Wen said during a meeting with Merkel.

Wen apparently added that China and Germany must make "consistent efforts"to bolster the confidence of the international community, given their roles as important economies and strategic partners.

Updated at 8.20am BST

7.53am BST

The Agenda

Angela Merkel and Chinese premier Wen Jiabao during a welcoming ceremony at the Great Hall of the People in Beijing, China, today. Photograph: DIEGO AZUBEL/EPA

Today, Angela Merkel has jetted to Beijing to hold talks with Chinese leaders. The eurozone is high on the agenda, along with other key issues such as Syria, amid fears that Europe's three-year old debt crisis is dragging down the global economy.

Merkel has just held a press conference with Wen Jiabao – details to follow.

Also coming up this morning: Italy faces another test in the bond markets today with a sale of long-term debt, and new German jobless data is released.

• Angela Merkel in Beijing: All day (and Friday)

• German unemployment data for August: 8.55am BST

• Italian auction of €6.5bn of five and 10-year bonds: around 10am BST